“India is much more and much less of what we often think”

Peter Hansen, Director of CaixaBank India

Peter Hansen is the Director of CaixaBank office in India. Born in Mumbai, but Danish by descent and Spanish at heart, he has told us about his experiences and impressions of India; his adoptive country.

INDOLINK: What do you do in India and for how long have you been living here?

PETER HANSEN: I was born in Mumbai 53 years ago and I lived there until the age of 12. Then I was sent to Europe to study and I spent there half of my life. I came back to India in the late 90s as the Commercial Counselor of the Embassy of Denmark, because I have Danish nationality, although I am Spanish in my heart since my wife and sons are Spanish and I lived there for 23 years.

Afterwards, I was engaged in setting up the office of P4R in India and I was also the Managing Director of an important NGO in India.

In total I have lived for 23 years in different parts of India: Mumbai, Delhi, Orissa…

Kolkata: Allahabad Bank will provide loans to farmers and rural artisans to buy solar off-grids made by Environ Energy Corporation India Pvt Ltd. It has entered into an agreement with the solar energy solution company on Tuesday to this end.

The Kolkata-based public sector bank will offer the loan at 5% under the government’s capital subsidy-cum-refinance scheme for promotion of solar off-grid. Farmers, agricultural labourers, rural artisans, entrepreneurs and salaried persons are eligible to get a loan under the scheme.

To avail of the loan, borrowers are required to foot 20% of the cost of the project as margin while 30% is available as capital subsidy. Borrowers will also get a Rs 500 rebate from the solar company.

PUNE | NEW DELHI: Mercedes Benz will drive in small cars as the German luxury carmaker targets 5-digit annual sales in the country in a few years that may help it steer ahead of archrivals BMW and Audi.

“We are talking to our German office to bring in smaller cars in the A- and B-Class range that may have a great market potential in India,” Mercedes Benz India MD & CEO Peter T Honegg said.

ICICI Bank may be killing two birds with one stone through its proposed merger of the Bank of Rajasthan. Besides getting 468 branches, India’s largest private sector bank will also get control of 58 branches of a regional rural bank sponsored by BoR.

The regional rural bank (RRB) sponsored by BoR is the Mewar Aanchalik Gramin Bank (MAGB). It was established in 1983 and has branches spread across three districts — Udaipur, Rajsamand and Pratapgarh in Rajasthan.

All other things being equal, ICICI Bank will be able to step into BoR’s shoes as the new sponsor of MAGB.

Hurdles

However, ICICI Bank’s ‘foreign-owned, Indian-controlled’ tag could prove to be an impediment in effecting a change in sponsorship of MAGB. The bank could face legislative hurdles as RRBs have been established under the provision of an Ordinance promulgated on September 26, 1975, and the RRB Act, 1976.

Barring MAGB, J&K Gramin Bank (sponsor: J&K Bank Ltd) and Kshetriya Kisan Gramin Bank (sponsor: UP State Co-op Bank), all other RRBs have public sector banks/ associate banks of State Bank of India as their sponsor. There are 83 RRBs in India.

RRBs are jointly owned by the Government of India, the State Government concerned and the sponsor bank with the issued capital being shared in the proportion of 50 per cent, 15 per cent and 30 per cent, respectively. They were floated to ensure sufficient institutional credit for agriculture and other rural sectors.

Opposition

ICICI Bank will be the new sponsor of MAGB by virtue of its merger of BoR. But the moot point is whether the Government and the Reserve Bank of India will allow a ‘foreign-owned, Indian-controlled’ bank to become the sponsor of a RRB, according to Mr Pramod Kumar Sharma, General Secretary, All-India BoR Officers Association. Mr Sharma emphasised that there is no fit between the working culture of ICICI Bank with either BoR or MAGB.

Meanwhile, the United Forum of BoR Unions has written a letter to the Reserve Bank of India seeking its intervention to stall the merger of BoR with ICICI Bank on grounds of violation of established norms of corporate governance.

The forum alleged that the dominant shareholder group (the Tayal Group) and allied entities proposed the amalgamation of BoR with ICICI Bank in a surreptitious manner on May 18 through a swap (25 equity shares of ICICI Bank for 118 equity shares of BoR) at a time when they were debarred by SEBI through an interim ex-parte order (issued on March 8) from dealing in the market with immediate effect.

SEBI probe sought

Mr Vishwas Utagi, General Secretary, All-India Bank Employees Association, has demanded a SEBI investigation into insider trading in BoR shares. He claimed that though the amalgamation deal between the two banks was finalised in the early hours (0430 hrs) of May 18, the same was not disclosed until about 5 p.m. to the three stock exchanges — Jaipur Stock Exchange, Bombay Stock Exchange and National Stock Exchange — on which BoR is listed.

Further, according to the RBI guidelines, private sector banks have to ensure that the decision on merger should be approved by two-thirds majority of the total board members and not those present alone.

However, out of the total 15 directors on the BoR board, 12 attended the board meeting held on May 18, said an association representative. While seven directors voted in favour of the amalgamation, five abstained from voting.

The Reserve Bank of India (RBI) favours giving banks the freedom to decide interest rates on their savings deposits, according to deputy governor K C Chakrabarty.

A decision on this would be taken after discussions between all the stakeholders — banks, depositors and regulators. RBI sets the interest rate on savings accounts and it is currently 3.5 per cent.

The proposal to free savings rates was supported by C Rangarajan, a former RBI governor and now chairman of the Prime Minister’s Economic Advisory Council. He also sounded a cautionary note that inflation had accelerated to an ‘uncomfortable level’ and that some RBI action on the demand side was called for.

The two were speaking at a meeting here on the issue of ‘financial deepening’. The deputy governor concurred that inflation was a cause for concern. However, he stopped short of saying when and what action the RBI could take. The government on Monday said inflation in May rose to 10.16 per cent. It had also revised upwards to double-digits the inflation figures for February and March.

“Double-digit inflation is not an easy thing,” said Chakrabarty. “The international situation is not that volatile. Something has happened in Europe. It has not happened in the United States. It has some adverse implications. I think, more than that, the domestic inflation is definitely a matter of worry.”

Over recent months, RBI has initiated steps to counter inflation. It raised key rates by quarter percentage points each on March 19 and April 20, lifting the repo rate to 5.25 per cent and reverse repo to 3.75 per cent. Bond traders and analysts have been speculating if the RBI will raise rates a third time and before its scheduled monetary policy review meeting on July 27.

“The double-digit inflation has now remained for three to four months. Therefore, it can no longer be treated as purely food inflation because the manufacturing sector is also showing a reasonably high degree of inflation, at 6 per cent-plus,” said Rangarajan. “Some action on the demand side is called for. It’s up to the Reserve Bank to take action, whether immediately or a little later. But, I think the question of taking some action in terms of tightening the policy has become imperative.”

Both issues linked
To ensure smooth transmission of its monetary policy, RBI last year suggested interest rates on savings deposits must be left to banks to decide. It began by asking banks to calculate savings bank interest rates on a daily basis from April 1 this year. Earlier, banks calculated this rate for the last 20 days of the month. As daily calculation increased the cost for banks, the bankers had demanded a cut in the savings bank interest rate.

The central bank’s move to free the savings rate is also aimed at smooth transmission of monetary policy in bank interest rates. It was observed by the regulator (in April 2009)that interest rate responses by banks to monetary policy changes were sticky during the period when RBI aggressively reduced interest rates after the onset of global financial crisis from September 2008.

In that same April 2009 policy statement, RBI said adjustment in market interest rates in response to changes in policy rates get reflected with some lag. Transmission to the credit market is somewhat slow on account of several structural rigidities,it said. The administered interest rate structure of small savings acts as a floor to deposit interest rates, banks told RBI. Without reduction in deposit rates, banks find it difficult to reduce lending rates exclusively on policy cues, RBI said.

Govt on board
Though RBI had mooted freeing savings bank interest rates in April 2009, the government didn’t seem comfortable with it, as small savers, including pensioners, would have suffered if savings bank rates declined. However, the central bank indicated the government was now in agreement.

“Deregulation is not Reserve Bank policy. Deregulation comes under reform in the financial sector,” said Chakrabarty. “It has been approved by the parliament. This is (a)sequence of the reform.”

Supporting the RBI view, Rangarajan said, “I think the direction in which the thinking is going is that the savings deposit rate also should be free. It is only a matter of timing. Some modifications can also be introduced — like, if a minimum can be prescribed.”

Both Chakrabarty and Rangarajan said competition will ensure rates don’t vary by a large margin and ruled out high variation in savings rate of banks in a deregulated environment.

In its April 2009 statement, RBI also proposed to re-visit the benchmark prime lending rate of banks in order to bring transparency in loan pricing and smoothening monetary policy transmission.

Consequently, it decided to replace the benchmark prime lending rate by the Base Rate, in which banks have been given freedom to decide the methodology on calculating it, but barred from lending below this rate. Under the present system of benchmark prime lending rates, almost up to 70 per cent of loans are given below the prime rate. The base rate regime will take effect from July 1.

Banks raised nearly Rs 62,000 crore on a net basis today through the two liquidity-adjustment facility (LAF) operations conducted by the Reserve Bank of India to tide over the liquidity crunch.

This is the highest level of net borrowing from RBI since October 31, 2008, when banks raised over Rs 65,000 crore in a day. The huge liquidity support had been sought at the time, as banks were wary of lending to each other at the height of the global financial turmoil and the payment of advance tax in September 2008 had added to the crunch.

WIDENING WINDOW

Date

Amount parked via
reverse repo

Call
amount

Call
rate

May-21

47,530

139

2.50-3.85

May-24

4,540

12,541

2.50-4.20

May-25

8,890

8,433

2.50-4.20

May-26

5,685

8,879

2.50-4.20

May-28

6,215

352

2.75-4.30

May-31

-3,710

11,362

2.80-5.30

Jun-1

-5,575

9,409

2.90-5.40

Jun-2

-12,775

6,171

2.50-5.40

Jun-3

-8,095

6,456

2.95-5.35

Jun-4

-16,875

393

2.90-5.30

Jun-5

NIL

516

2.90-5.30

Jun-7

-61,920

5,847

2.85-5.40

– Since May 31, banks have availed of funds via the repo route and are net borrowers during the liquidity adjustment facility (LAF) operations
– No LAF operation was conducted on June 5
– Amount in Rs cr, rate in % Source: RBI, Clearing Corporation

But, unlike the days of the financial meltdown, when market players accessed cash at over 20 per cent from the call money market, rates remained in the 2.85-5.40 per cent band and volumes seemed to have stabilised. A dealer said banks were now opting for RBI’s repo window, as rates were marginally lower, at least for some of the banks. Besides, there is uncertainty that banks will be able to get the funds at one go, unlike the repo window.

In the collateralised borrowing and lending obligations (CBLO) space that is also accessed by mutual funds, insurers, bond houses and non-banking finance companies, rates hovered in the 5.25-5.40 per cent band. Volumes were lower at Rs 39,574 crore today as against nearly Rs 45,000 crore since May 21, when the auction for third generation (3g) mobile spectrum ended.

Today, dealers said, banks accessed funds through the central bank’s repo window as they wanted to ensure adequate availability of cash ahead of the reporting fortnight. Typically, banks front-load their borrowings and keep cash in advance.

For the last two weeks, liquidity has tightened due to telecom companies paying nearly Rs 68,000 crore as spectrum fee for 3G services. Liquidity is expected to remain tight as companies have to pay the first installment of advance tax by June 15. “We expect the situation to remain tight this month and even in early July,” said an SBI executive.

Apart from the 3G payments, there is pressure due to foreign institutional investors continuously selling in the Indian markets for the last few days.

As FIIs have been withdrawing rupee from the Indian market to purchase dollars, there is added pressure in the local money market, dealers said. So far, in May and June, overseas investors have sold a net amount of $2 billion (over Rs 9,000 crore) worth of shares. What is expected to add to the liquidity pressure is the auction for broadband wireless access (BWA) spectrum for which companies have already submitted bids in excess of Rs 25,000 crore. The market expects that the government could fetch as much as Rs 40,000 crore. This would mean that the companies will raise funds to meet the payment needs.

While the RBI has announced steps to tide over the crunch, banks said most of them do not need to drop the level of SLR holdings below the 25 per cent level to access additional funds. RBI has allowed a 50 basis point reduction and is also conducting a second LAF. “It is an enabler but at the moment we do not need it,” said a bank chairman. Also, the cash management bills that the government used to raise funds for a short period and the reduction of the treasury bill auction size for June from Rs 37,000 crore to Rs 15,000 crore is expected to have an impact over the next few weeks and will not provide immediate relief to banks.

NEW DELHI: The government has infused Rs 1,500 crore into four public sector banks, including UCO Bank and Central Bank of India, as part of their recapitalisation package.

Of the total, Vijaya Bank got Rs 700 crore, UCO Bank got Rs 300 crore, Central Bank of India and United Bank of India received Rs 250 crore each, sources said. The letter to this effect was issued by the government on June 2.

The government has instructed to issue perpetual non-cumulative preference shares (PNCPS) in favour of the President, the recently listed United Bank of India said in a statement. Accordingly, the bank has issued 25,000 PNCPS of Rs 1 lakh each on June 4 in the name of the President, it added.

The fund infusion will enable these banks to maintain comfortable level of capital to risk-weighted asset ratio for supporting credit requirement of the productive sectors.

During the past fiscal, the government had provided Rs 1,200 crore capital support to Central Bank, UCO and United Bank of India to meet their capital requirement.

UCO Bank and Central Bank got Rs 450 crore each while United Bank of India which recently got listed, received a financial assistance of Rs 300 crore.

The government plans to provide financial support of Rs 15,000 crore to the public sector banks during the current fiscal. The Cabinet has already approved capital infusion plan that will increase the lending capacity of banks by Rs 1.85 lakh crore.

The exact amount, the mode of capitalisation and other terms would be decided in consultation with the banks at the time of infusion.

The Rs 15,000-crore fund infusion for tier I capital instruments of PSBs would enable them to expand their credit growth by about Rs 1,85,000 crore. This additional credit availability is likely to benefit employment-oriented sectors, especially agriculture, micro and small enterprises and entrepreneurs.